McCain health plan funds universal coverage and lowers cost

The Obama "distribute the wealth" tax cut for 95 percent of Americans is really a $1,000 welfare check to 50 million Americans who currently pay no income tax. Imagine instead, using that $50 billion to fund health care for the uninsured. The "McCaincare" voucher system does that. Why didn't the Democrats think of it?

Of the 46 million uninsured Americans, about 10 million are regularly uninsured, according to the U.S. Census Bureau. The vast majority are temporarily uninsured, either because insurance is too expensive, their employers don't offer it, they are young and healthy, they are illegal residents, or they prefer self-pay (e.g., the Amish).

The vast majority of the uninsured are temporarily unemployed. Health savings accounts solve this problem because they stay with the owner. If you lose your job, your HSA stays with you, allowing you to pay health expenses and continue payment of premiums. And under McCaincare, it is funded by a voucher, a $5,000 tax credit for families and $2,500 for individuals. McCain vouchers, in combination with health savings accounts, would provide universal health care coverage and control cost, tackling challenges from the health care mess.

Under McCaincare, companies large and small will probably offer health savings accounts. Health savings accounts are a combination of insurance, out-of-pocket expenditure, and personal savings. Health savings accounts are increasingly popular in America and are proven successful in South Africa and Singapore, according to the National Center for Policy Analysis. Six million Americans currently have health savings accounts. Large employers such as Medtronic, Raytheon, Textron and the University of Minnesota have HSA programs. Small employers will offer their employees HSAs because they are cheap to set up and the McCain voucher would fund it.

Under McCaincare, your employer will continue to provide a health care benefit. Simply put, employers have an interest in a healthy, productive work force. Employers will continue to enjoy the FICA tax exemption for their contributions toward the purchase of your health insurance. The changes under McCaincare will include increased choices of health care plans and a different tax treatment.

Your 1040 form will change. Your health dollar benefit will appear on a new line designated "other income." This will result in a higher tax that will be offset by the McCain tax credit. You will net a positive advantage, unless you are in the highest tax bracket. This corrects that regressive taxation in which the high wage earner receives a larger tax deduction than the low wage earner. This plan is more fair.

By not supporting vouchers and HSAs, "Obamacare" maintains the current unfair regressive taxation on health care benefits. The reason is hidden: Obama's real plan is to introduce government-sponsored health care. He will offer government-supplemented plans to compete against private insurance. Private insurers will not be able to compete with the U.S. government. The end result is a single-payer system.

Under McCaincare your employer may offer new insurance options, including plans from other states. Some of these plans will cost less because they will not be subject to mandates. Mandates may require that your health care plan include coverage of certain benefits, providers or beneficiaries. Mandates raise the cost of health plans by 20-50 percent, and Missouri has 39 such mandates, according to a report by the Council for Affordable Health Insurance. Our legislators busily increase that number by about 4 percent per year. Obamacare adds another mandate, the so-called employer mandate, forcing every employer to provide health care coverage. This places another burden on small companies that are struggling to survive and drives up the cost of health care for everyone.

Health savings accounts introduce powerful incentives into the health care system by empowering patients to be thrifty and elect a healthy lifestyle that keeps their money in the bank. The HSA accumulates money during healthy years and pays out money to cover illness. It can be used to pay for long-term care currently not covered by Medicare. At death, the HSAs are passed to the heirs. A study of employee health claims at a large manufacturing company found that 95 percent of employees would retain at least 20 percent of their HSA contributions and 80 percent would retain over half of their HSA contributions, according to a report by the National Center for Policy Analysis. That is money that could cushion future medical needs in retirement.

Health savings accounts also reduce the administrative cost for small expenses. It typically costs about $25 just to process a health care claim. By reducing the number of claims, a physician organization in Washington state reported saving their cash-paying patients 50 percent or more on the dollar, according to a report from the National Center for Policy Analysis. No claim needs to be filed when you simply pay with your HSA debit card.

The HSA restores the patient as a medical care decision maker. As the patient gains individual responsibility, the central planner and gatekeeper roles are diminished.

There is a clear choice on health care on Election Day. McCaincare offers responsible freedom of choice and compassion for the medically needy. Obama and Pelosi will target HSAs for extinction, perpetuate the current system, and eventually rob Americans of the incentive to rein in health care cost.

Dale Vaslow is the president of the Boone County Medical Society. His columns also appear in the group's monthly newsletter,
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Comments

"This corrects that regressive taxation in which the high wage earner receives a larger tax deduction than the low wage earner. This plan is more fair."

High-wage-earners get back about 40 cents in social services for every dollar they pay in taxes, while low-wage-earners get $8. For the system to be truly fair, low-wage-earners need to start paying more for the disproportionate amount of services they use.

Gregory, you would be taxed a percentage of your health care coverage, not the full amount. Also, the $5000 is a credit, not a deduction. That means it offsets income on a dollar-for-dollar basis, not a percentage basis such as charitable contributions.

As an example, let's assume you are in the 25% tax bracket. You would be taxed $1500 (25% of $6000) on your insurance, leaving you $3500 to put in an HSA. Do that for a few years, as I was with a similar type of insurance, and you have a decent little medical nest egg built up. The one part of McCain's plan that I don't like is it is a $1.3 trillion tax cut over 10 years, so spending would have to be cut to make this balanced.

I previously had a health fund where my employer put money into my account and it rolled over year to year, but was not quite an HSA as it was not portable. That was not offered last year, but an HSA was and I took that option. It saved me a couple thousand dollars in premium costs over the year, and my employer also put in half of the deductible into my HSA account. The costs of prescriptions also factored into the deductible, which was $3000 for the family I believe. A local medical company wasn't terribly excited about the insurance when it came time to buy a piece of medical equipment, but the 20% I had to pay wasn't a terrible burden. That was the only other downside I saw as the coinsurance was 80% instead of 90% with the PPO plan I was also offered. If I wished, I could have plowed that extra couple grand into my HSA and built up a cushion there for any health emergencies, something I am considering for enrollment this year.

It helps because it is a tax CREDIT not a tax DEDUCTION. A credit is applied to the tax paid, not the income taxed.

In other words, if your employer pays $6,000 per year for your health insurance, the tax (at a 35% marginal rate) would be $6000 x .35 = $2,100. This is reduced by up to $2500 in your case:

$2100 - $2500 = -$400.

The tax credit is only on insurance, so you would not get to reduce your other taxes by $400. But ALL of the taxes owed on your $6000 policy would be eliminated by the CREDIT. You would not owe any additional debt.

The big difference is that if you purchase insurance on your own -- due to unemployment or retirement or starting your own business, etc. -- you would get the tax credit. Right now people who purchase insurance on their own have to pay taxes on the income used to purchase insurance, while those who get insurance from their employers do not.

With an HSA there is still billing. If nothing is billed to the insurance company, then nothing is put toward the deductible in that plan. Also, the billing process is necessary to determine the amount that is owed due to contractual obligations that the provider may have with the particular HSA; basically service discounts to you for having the plan. So there would not be "no-billing" savings with an HSA.

I know this because I not only have an HSA myself, but I serve as head of human resources for a health care company and I do the medical billing there as well.

The health care credits, according to McCain's website (I was just there), go to the insurance company to help offset fees, not to the individual. Since the money does not go to the individual, the individual will have to cover the health-care-as-wages taxes themselves. If there is any credit left over after the insurance company is done with it (which there wouldn't be much if any as even an HSA plan for an individual typically runs about $2200 - $3000 per year and for a family it runs about $5000 - $6500 per year -- not including deductibles, of course; and not including increased rates for risky health conditions), that would go into the HSA which can only be used to pay for health related items and services, which income taxes would not be. So the individual would have to pay those taxes. And,if the person has the typical employer offered health plan -- comprehensive group plan-- the typical yearly cost being more in the $10000 - $14000, their taxes could be an additional $1200 or more depending on their tax bracket (using McCain.com example of $12000, the median).

I have not been able to determine if McCain intends this credit to offset only the employee portion of the policy premium, or if the credit goes to the overall cost of the premium. Obviously the former would be much better for the individual than the latter -- but I can't find anything that talks about that. If he intends to have it go to the employee-only portion, then that would be a very good deal for those lucky enough to have employer covered health insurance as it truly would reduce the overall amount that the those individuals would have to pay out of their own pocket.

But if you don't already have employer coverage, and just really don't make enough to cover the high deductibles that HSAs require along with the premiums that the credit will not cover (according to McCain.com, any premiums that individuals pay will not be taxed, so there wouldn't be a tax issue in this scenario), well, this idea just doesn't help you at all. Even if the credit managed to pay the whole premium, the person on an HSA must pay for all their care up to their deductible (with HSAs, by design, is VERY HIGH); which, without health insurance, is what they are already doing. If they are struggling to pay those costs, how could they afford the left over premium of an HSA?

I think McCain's plan would help those in the higher eligible income levels a little, but would not help those in the lower ones much, if any. I'm not convinced that his plan would lower the amount of uninsured by very much at all.

One more point I'd like to make, is that Obama intends to give a tax credit as well. It's not welfare, not anymore than McCain's would be. All working people pay taxes. I have a 15 year old son that doesn't make enough to pay income taxes but still pays taxes out of every check to FICA for Social Security and Medicare. He works just a few hours a week and yet still pays over $100 in taxes annually. Most working people work well over a few hours a week A person working even minimum wage full-time pays over $1000 annually in these taxes. They are not being given money they didn't earn, they are just being allowed to keep more of what they earn.